Financial markets functions o brokerage o dealership o investment banking

Financial markets functions o brokerage o dealership

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Financial markets (functions) o brokerage o dealership o investment banking (underwriting) o stock exchanges (future options) o OTC (over the counter) o Money markets vs. capital markets Money market: short term highly liquid securities (up to a year) very liquid: readably converted to cash at the prevailing market value Marketable: can be easily bought or sold Low risk of default: highly unlikely to not pay the interest/ buy back (low credit risk) Short-term maturity Capital market stocks (common and proffered) Bonds, notes futures options 4. Financial instruments (securities) o Define: a claim on a future stream of cash flows o Characteristics (may vary between securities): # of payments to be received fixed or variable payments magnitude of payments o Major groups 1. Government securities treasury bills, notes, bonds Consols (perpetual bonds) 2. Corporate securities Common stock preferred stock notes, bonds Commercial paper
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3. financial instruments issued by financial intermediary - 5. Money o Fixed price claim o Unit of account o medium of exchange o Store of wealth 6. Additional concepts o liquidity the ability to realize value in money length of the time required certainty of price realized Lecture 5: Sept 19 th One more distinction of financial markets - The primary market vs the secondary market o TSX is a secondary market - Primary securities vs indirect securities Part 3: Financial (funds) Flows and the FF matrix - Stocks: amounts (e.g. of funds) at a point in time - Flows: Amount of activities of a period of time Financial flows matrix 1. Gives us savings and non-financial capital acquisition of each sector 2. Net surplus or deficit (of funds) for each sector 3. Information on the disposition of funds by surplus by surplus sectors 4. Information on the securities used by the deficit sectors Limitations of the FF matrix 1. No information about the transactions between economic units in a section 2. Flows for a period of time is net rather than gross flows Lecture 6: Sept 21 st
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